Personal credit is not the only factor used for surety bond underwriting. However, red flags on a credit report can make a rate sky rocket or in severe cases cause a declination. Red flags consist of bankruptcies, tax liens, collections, civil judgments, and low credit scores. The scoring system used by the credit bureau are complex algorithms that determine a persons individual score.
Having your credit pulled can lower your score. A credit inquiry that will lower a score is called a “hard credit report”, which can lower a score as much as 5 points per inquiry. A “soft credit report” does not count as inquiry and does not lower credit scores. Insurance related businesses, such as bonding companies and bond agencies are permitted make use of soft credit inquiries.
In my last article, “What Makes A Good Surety Bond Producer?”, I discussed how a good bond producer will be mindful of the principal’s personal credit. A great way to do so is by making use of soft credit inquires so credit is not negatively affected. A bond producer that shotguns applications to every bonding company and broker they know could drastically lower the principal’s personal credit.
The best example of the devastating effects of hard credit reports can be seen on mortgage brokers’ credit reports. They often have a long list of inquiries, which can make even the highest of scores plummet. What can be done to fix this problem? Unfortunately, not much since the brokers need the banks to run their business. However, I do have some good news for the brokers out there. A window is created, in which additional inquires do not count for 14 days when a hard credit report is pulled. The only thing that can be done is to try to time the credit pulls of the banks at the same time so you do not get too many hard credit report inquires that effect credit. Try setting up all of your banks at the same time rather than stringing them out over time.
Our agency always does anything possible to keep the credit scores of our clients up! The majority of our applications are done on soft credit reports only, and therefore credit is not effected whatsoever. A bond producer that does not know their markets could drastically effect the personal credit of all owners. Be careful with your credit, the time spent planning will save you hand over fist in the long end.